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There are many different forms debt relief can take. You may need credit card debt relief to pay off credit cards, or you might be interested in debt consolidation if you have several debts to pay off.
Debt relief may include a variety of techniques including debt management plans, credit counseling, and debt resolution. It can help you find a workable path for eliminating your debt.
Debt relief isn’t a one-size-fits-all solution. There are different ways you can approach it, depending on how much you owe and what type of interest rates you’re paying. Here’s a closer look at four of the most common debt relief options.
You may choose to consolidate debt because you have several different loans or lines of credit to repay. Debt consolidation is a way to combine the various debts into one. For instance, you could use a personal loan to consolidate debt from multiple credit cards. Balance transfers are another option for credit card debt relief. In this case, you can open a new credit card account, ideally at a low or 0% annual percentage rate, then transfer your existing balances to this card. After consolidating your debt, you’ll just have one payment to make each month. It may or may not save money on interest, however it's important to understand the pros and cons of debt consolidation.
Seeking out a credit counselor could be a good fit if you just need some help with creating a workable debt repayment plan. A credit counselor also may help educate you on basic budgeting issues that could have led to your having excess debt in the first place. Many nonprofit credit counseling agencies offer their services free of charge. It’s a good idea to check the agency’s accreditation status—and the credit counselor’s certification status—with the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA).
If you’re looking for debt relief, debt resolution is an option of last resort. It allows you to pay off debts for less than what’s owed. If your creditor agrees to a debt resolution, any remaining balance is canceled.
This is effectively a type of debt relief because you don’t have to repay anything more than the agreed-upon settlement amount. Debt relief and debt resolution is something you can do yourself if you have cash to pay your creditors and you’re comfortable negotiating with them one on one.
You can also try a debt relief company that will negotiate with your creditors on your behalf. This is typically done by paying them a fee and this can be an expensive option.
Debt resolution and debt relief can help you get out of debt, but also keep in mind that you typically need to be past due before a creditor will consider settling a debt. So, compared to other debt relief options, debt resolution can be more damaging to your credit score.
Here’s an example: If you work with a debt relief company, they ask you to make payments to a separate account they set up, not to your individual creditors. This will cause you to be past due with your creditors for a period of time.
There are income tax implications when you settle debt through a debt resolution company or on your own - Tthe forgiven debt will likely be considered taxable income.
Debt relief could help you find the light at the end of the tunnel if you’re weighed down by debt. It can also help head off the possibility of filing bankruptcy. Understanding what you hope to get from debt relief and how it helps is critical for choosing the right solution.